Elevator bin-building boom slows

U.S. grain elevators are taking a break from a recent building boom to remove bottlenecks from their delivery systems, needing to handle growing volumes of corn and soybeans more rapidly.

Grain storage space hit an all-time high last year, driven by large crops coming out of the fields and increased demand for elevator space. Yet inventories of corn are at historic lows, leaving ample space going into the fall harvest. That is driving companies, from giants like Archer Daniels Midland Co. (ADM) to small, country elevators, to focus on upgrading systems at their elevators.

"The new macro outlook for elevators is the ability to quickly handle greater volumes of grain at higher prices," said Michael Swanson, agricultural economist with Wells Fargo Bank in Minneapolis, Minn.

The bottleneck projects are smaller, allowing elevators to conserve cash to cover margin requirements as corn futures trade near record prices. The upgrades aim to make elevators more competitive, reducing the time farmers have to spend on delivering their crops.

Still, the slowdown in storage expansion is expected to be just a breather for the industry. The need for elevator space is expected to continue growing as farmers plant more acres and see their crop yields increase.

For now, "there is limited incentive financially to build new bins," said Kim Craig, a merchandiser for Bell Enterprises, a privately-owned group of commercial grain elevators in Illinois.

The shift away from building new facilities comes after U.S. storage capacity reached all-time highs in 2010. Off-farm commercial grain storage capacity in the U.S. as of Dec. 1 totaled 9.74 billion bushels, up 3% from a year earlier and up 15.7% from 2001, according to data from the U.S. Department of Agriculture.

Elevators are boosting their speed in receiving and shipping grain by upgrading grain drying and loading capacity to take advantage of strong demand. The upgrade in elevator infrastructure allows operators to keep up with larger amounts of grain delivered from farmers.

Elevators are doubling, or in some cases tripling, the amount of grain deliveries they can receive at once. That's done by increasing the number of areas, or pits, where trucks dump grain and adding more conveyor belts, or legs, that lift the grain into storage. Faster turnaround is expected to attract more business for elevators as farmers in the midst of harvesting their crops don't want to spend hours in line waiting to make a grain delivery.

Most commercial elevators built in the 1970's were designed to receive grain at a pace of 10,000 to 12,000 bushels an hour. Now they need to receive grain at 20,000 to 30,000 bushels an hour to keep up with current supply capabilities, said Warren Oderkirk, senior commercial project manager for GROWMARK Grain Systems, a Peoria, Ill.-based firm that designs grain storage and handling systems.

"If you can unload it, they will come," he said.

The industry is in a cycle of upgrades after a rapid expansion, but the next 5 years will continue to produce consistent expansions, said John McEnroe, vice president of country operations at St. Paul, Minn.-based CHS Inc., which owns 60 elevators across the Midwest.